Jack TenneyExtra Point

by Jack Tenney, Publisher

July 1998

The closing

When I had to spend a few extra nights in Philadelphia closing a deal, I thought nothing of it. In fact, I rather enjoyed the big city sounds, deli sandwiches, trick soups and much of the carping and crapping around that accompany closings. There were a lot of parties to the deal-- four corporations, two banks, a development authority, inside and outside shareholders. All parties had counsel. If you have ever heard critical references to Philadelphia lawyers, I assure you they are not without basis.

The game plan for Day One was to begin on time (9 a.m.) and identify some minor document to blame a delay on. Once identified, everyone on the clock kept the ball in the air until lunch break. I could do lunch with the best of them.

After lunch, everyone, who had to, signed the minor document and we raced through some really important (as far as I was concerned) exhibits and attachments, going so fast that a couple of them were accepted as included even though clearly they were excluded.

At 3:30 p.m. it became clear that the deal wasn't going to close that day. All the out-of-towners (me, mine and two or three others) re- booked flights and reserved rooms.

Day Two. Someone brought up a language conflict in a labor agreement that referred to a defined payment pension plan which, in fact, was a defined benefit plan. I tried to characterize the distinction as a fish bone. Buyer's counsel roared that it was a whale bone. We worked all day on some language that suggested that if a problem later became apparent we would sue, counter sue, arbitrate, obfuscate, wiggle, squirm and try to get each other to take the rap.

Again at 3:30 p.m., it became clear that the deal wasn't going to close that day. All the out-of-towners (me, mine and two or three others) re-booked flights and reserved rooms.

Day Three. No one even talked about lunch until after 2 p.m. We were going to close the deal. All that remained to be done was throw a little money around and catch those planes.

The essence of the deal resembled Chapter 14 of the "No-Money Down" book. Newco was to borrow a ton a money from BancA and have it delivered to Oldco's bank (BancB) across the street. The receiving bank would apply the loot to Oldco's loan and the difference between the gross deal price and the Oldco loan payoff was made up in a triple-feathered subordinated debenture thingy from Newco to Oldco.

What could be the problem?

Banks! Or, more precisely, bankers. After, two-and-a-half days of harassing Newco for guarantees, warranties, securities, representations, pledges, piques and perquisites the BancA boys wanted to give their competitor across the street a hot foot. Even though both the buyer (Newco) and the seller (Oldco) would have to pay interest that amounted to twice the rated interest for the amount outstanding, the BancA folks wanted to figure out how to time the transfer of funds so that BancB had to settle Oldco's loan but couldn't shoot the loot through the Fed window to invest overnight.

The interest rates back in those days were astronomical -- 15 percent prime was a memory and a good one at that. The rate for that day was the better part of 17.865 percent, which meant that the one-day carrying cost on a couple of million was about a thousand bucks or in this case $2,000 because both Oldco and Newco had to pay their respective banks.

At the last possible minute, BancA wired the funds across the street to BancB and we went home.